Fleet News

Employers' rights to reclaim VAT on road fuel clarified

HM Revenue & Customs (HMRC) has today announced a change to the rules governing the recovery of VAT by employers on road fuel, following a European Court judgement in March 2005.

This new secondary legislation allows employers to recover the VAT on fuel purchased by their employees, which is explicitly for use in their business in the making of taxable supplies (as they could previously), as long as they hold a valid VAT invoice in support of the claims.

The Paymaster General, Dawn Primarolo said today: 'This is a good result for UK businesses; it is absolutely right that employers who have paid VAT on purchases of road fuel used for business purposes by their employees should be able to recover this, subject to the normal rules. We are pleased that this has been achieved through this new legislation and burdens on businesses have been kept to a minimum.'

Up to now, the recovery of VAT on fuel by businesses, purchased by employees from their own funds, was approved through existing UK legislation. However, the European Court found that this legislation was not compatible with the relevant provisions of the Sixth VAT Directive.

This was because the terms of the legislation did not ensure that the VAT recovered related solely to fuel used for the purpose of the employer's business in making taxable supplies, and did not require the employer to hold a VAT invoice.

Importantly, the Court did not agree with the European Commission that employers had no right to deduct VAT on the grounds that the goods were not supplied to them as taxable persons. This would have been a more serious threat to VAT recovery by UK businesses.

The new secondary legislation meets the terms of the Court's findings, and the only additional requirement, for businesses that do not already do so, is that VAT invoices must be retained in support of their claims.

Business Brief (22/05) is being issued with full details of the changes.

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